Summary
Full Decision
ARBITRATION DECISION
The arbitrators Judge Counselor Dr. Fernanda Maças (arbitrator-president), Doctor Tomás Cantista Tavares and Dr. Rui Manuel Correia de Pinho (arbitrators members), appointed, respectively, by agreement of the arbitrators appointed by the parties, by the Claimant and by the Respondent to form the Arbitral Tribunal, agree as follows:
1. Report
A..., SA, NIPC..., with registered office at ..., no...., ..., -..., ... (hereinafter A... or Claimant) filed a request for constitution of a collective arbitral tribunal, in accordance with the combined provisions of articles 2, no. 1, para. a) and 6, no. 2, para. b) of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter RJAT), in which the Tax and Customs Authority (hereinafter TA) is the Respondent, with a view to declaring the illegality of the assessment of Corporate Income Tax and Compensatory Interest for 2014, in the amount of €502,586.03 (no. 2017..., compensation 2017...).
The request for constitution of the arbitral tribunal was accepted by the President of CAAD and followed its normal proceedings.
The collective arbitral tribunal was constituted on 28/3/2018.
The TA responded by objection, arguing that the request should be judged dismissed.
For lack of necessity and with the agreement of the parties, the meeting provided for in article 18 of the RJAT was dispensed with. A witness indicated by the claimant was examined. The parties produced written submissions. The tribunal extended, by up to two months, the rendering of the decision, given the extent and complexity of the case.
The arbitral tribunal was regularly constituted and is materially competent, as provided in article 2, no. 1, para. a) and 4, both of the RJAT.
The parties have legal personality and capacity, are legitimate and are represented (articles 4 and 10, no. 2, of the same diploma and articles 1 to 3 of Ordinance no. 112-A/2011, of 22 March).
The proceedings do not suffer from nullities and there is no obstacle to consideration of the merits of the case.
2. Statement of Facts
2.1. Proven Facts
The following facts relevant to the decision are considered proven:
General Facts
a) The claimant is a limited company, incorporated on 3 December 2013, registered for the exercise of the main activity of "manufacture of perfumes, cosmetics and hygiene products".
b) Between 12/9/2016 and 23/6/2017 (with an inspection extension order), the claimant was subject to a tax inspection for its financial year 2014.
c) The Claimant was notified to exercise the right of prior hearing; which it exercised – and as a result the TA partially reduced the corrections to taxable income, from the initial value of €2,236,170.77 to €1,931,919.29, further detailed below.
Preliminary Report | Final Report
---|---
Invoices not recorded as revenues | €299,505.67 | €70,285.30
Discounts and allowances on sales | €91,581.08 | €76,085.60
Non-deductible expenses for tax purposes - accruals | €228,990.17 | €169,454.54
Non-deductible expenses for tax purposes - interest | €735,957.20 | €735,957.20
Impairments on customers | €880,136.65 | €880,136.65
Total | €2,236,170.77 | €1,931,919.29
d) The Tax Authority prepared a final report in which it explains the reasons underlying all these corrections – and the partial acceptances introduced in the prior hearing.
e) As a result of these corrections, the Claimant was assessed for Corporate Income Tax and compensatory interest for 2014, in the amount of €502,586.03 (no. 2017..., compensation 2017...) – the challenge of whose legality is the subject of this arbitration proceeding.
f) On 22/11/2017, the claimant provided bank guarantee no...., in the amount of €636,468.71, issued by B..., SA, to suspend the corresponding enforcement proceedings.
g) Company C..., SA (hereinafter C...) is in a special relationship with the claimant, as both are 100% controlled by D..., SGPS, SA.
h) The corporate purpose of the claimant is: "a) all and any activities related to the production, marketing, purchase and sale, distribution, import and export of any type of hygiene products, perfumery, cosmetics and domestic or personal cleaning products, foodstuffs or similar, as well as products intended for pets or other similar items; b) acquisition and management of trademarks and other industrial property rights, with a view to marketing the products referred to in para. a); c) implementation and management of selective and computerized networks and systems for the marketing of products referred to in para. a) and provision of services related to the management of purchases and sales and distribution of the same through such networks; d) provision of consulting and management services, purchase and sale of real property, including purchase for resale of property acquired for that purpose, as well as the exercise of activities related to or connected with these; e) provision of consulting and advisory services to any entities or ancillary to the activities referred to in the preceding paragraphs".
Facts concerning "invoices not recorded as revenues"
i) The matter concerns an invoice (no. 1410140), in the amount of €70,285.30, dated 31 August and issued to E... SARL.
j) The claimant served as a mere intermediary between the customer (E...) and the supplier (C...) – a "sister" company and supplier of the claimant and with directors in common with the claimant.
k) C... was experiencing financial difficulties at the time (2014), which led to its insolvency in January 2015.
l) C... invoiced the claimant in the amount of €70,285.30 (recorded in the balance sheet, by debit to account 32 Inventories and credit to account 22 Supplier).
m) In turn, the claimant invoiced this same amount to E..., also recorded (only) in the Balance Sheet (and never in the income statement), by credit to account 32 inventories and by debit to account 21 customer E....
n) This transaction did not pass through the income statement, neither the revenue invoice (invoicing to E...), nor the associated symmetric expense of the same amount (invoice from C...).
Facts concerning discounts and allowances on sales
o) In December 2014, the claimant delayed delivery of goods to customer F..., thus being subject to penalties, in the amount of €30,000.
p) Still in December 2014, there is an email exchange with customer F... proving the claimant's delay in shipment of products.
q) The claimant accepted these penalties and issued two credit notes, on 03/04/2015, in the total amount of €30,000.00, with the description of "logistics penalties".
r) In 2014, the claimant recorded these credit notes, in the amount of €30,000 – as an increase in expenses.
Facts concerning "Non-deductible expenses for tax purposes – accruals"
s) This matter, according to the nomenclature of the inspection report, concerns tax and financial consultants – €3,650.00; sales consultants – €142,114.17; and others – €23,690.37.
Concerning the "tax and financial consultants" matter
t) G... issued two invoices in 2015, in the total amount of €3,750.00 with the descriptions "analysis of the tax implications of selling products from Spain to the Canary Islands" (€1,500) and "our fees for completion of the transfer pricing process - 50% as per our proposal" (€2,250). The TA, in its inspection report, totals these two invoices at €3,650.00.
u) The claimant recorded these amounts in 2014 (as an accounting and tax expense of 2014) understanding that the service relates to that year, although invoiced in 2015.
v) The claimant did not record these amounts as an accounting and tax expense of 2015.
Concerning the "sales consultants" matter
w) The claimant sold products in Spain, but did not have its own sales force in that country.
x) In 2014, A... Spain issued an invoice on 30/12/2014, in the amount of €72,000.00, with the designation "for the commercial services rendered to its clients in Spain in the financial year 2014".
y) A significant part of the claimant's sales volume is carried out in Spain – and in 2014 there was a need to renegotiate contracts with customers in Spain, which was done by A... Spain, contracted for that purpose by the claimant.
z) In 2014, the claimant recorded 3 invoices in account 622105: invoice 02/14 in the amount of €12,268.61 (18/3/2014); invoice 005/14, in the amount of €32,812.47 (on 10/3/2014); invoice 14/14, in the amount of €24,709.76 (on 4/12/2014).
aa) The claimant later realized, still in 2014, that it had made an error in the accounting: it should have instead recorded in account 622104 – and respectively in April 2014, April 2014 and December 2014, it recorded a debit to account 622104 and a credit to account 622105 – in order to correct the error it had made.
ab) Each of these expense invoices contributed only once to the claimant's accounting and tax result.
Facts concerning "Non-deductible expenses for tax purposes – interest"
ac) The claimant's parent companies provided capital contributions to the claimant, in two contracts, in the amount of €2.5 million and €4.635 million, with an annual interest rate of 15% in each contract, so that the claimant, with these funds, could acquire certain trademarks for the exercise of its activity.
ad) In 2014, for these two capital contribution contracts, interest was owed in the amount of €725,482.19 (which will only be paid in subsequent years, at the end of the contract, together with the capital, by contractual agreement).
ae) The claimant incurred further interest in 2014, in the amount of €10,475.00.
Facts concerning impairments
af) The Tax Authority divides this matter into two issues: losses on impairment of customers, in the amount of €395,789.98; and losses on impairments on other debtors (company C...), in the amount of €484,346.67.
ag) Several companies of the E... group held credits against company C..., SA, in the amount of €881,740.96.
ah) On 1/10/2014, E... assigned the credits referred to in the previous point to the claimant, for the value of €395,789.98.
ai) The claimant had economic dependence on C..., which produced the products that the claimant sold; and therefore had an interest in C... continuing to produce.
aj) At the end of 2014, the claimant made the impairment (accounting and tax) of this credit, in the total amount of €395,789.98.
al) In April 2014, C... SA submitted a PER (Special Revitalization Request), which by opposition from creditor H... was converted into insolvency proceedings which was declared in January 2015.
am) The value of other debtors results from 3 components of impairments: (i) €391,891.35, for credits for purchases of raw materials on account of C...; (ii) €53,379.03, relating to credits for secondment of claimant's personnel to C...; (iii) €39,076.29, relating to credits for transfers to D... SGPS (the claimant's parent company).
an) C..., in financial difficulties, could not purchase raw materials itself to produce for the claimant.
ao) Then the claimant purchased the raw materials and sold them, at the same price to C... (and became creditor of C...); C... produced the products and sold them to the claimant, which settled the credit against C... relating to the raw materials.
ap) Several orders (sales to C...) were not paid and the claimant had to make this impairment.
aq) C..., in crisis, was left without staff in the commercial and financial departments.
ar) The claimant provided these services (financial and commercial) to C... (by agreement between the parties) and became creditor of C...: at the end of 2014 it makes the impairment of this credit.
as) The claimant sold raw materials without margin to C... and provided personnel secondment services, for its own selfish interests: it sold the products to C..., without margin (because it did not have the financial capacity to do so itself) and then bought the finished products that C... incorporated with these raw materials; it seconded part of its personnel to C... (to support the commercial, financial and manufacturing areas) because C... no longer had them, given its financial difficulties; the claimant is a commercial company and needed C... to produce its products; without C...'s production, the claimant would be left without products to sell to its customers.
at) The claimant made transfers in favor of the parent company (D... SGPS, SA) and, at the end of 2014, constituted impairments on these credits, in accounting and tax terms (in the amount of €39,076.29).
2.2. Facts Not Proven
In the analysis and decision of each specific situation in this proceeding (chapter 3), reference will be made to the points and matters that were not proven in the proceeding, either due to the absence of relevant supporting documents, or because the witness testimony was not coherent and concrete in some of the points of this action. The witness examined had knowledge of the issues, but in some cases provided merely generic and congruent testimony, without analyzing the transactions in their concrete vicissitudes, which, for that reason, failed to convince the tribunal.
2.3. Justification for the Determination of Facts
The proven facts are based on the documents submitted by the parties, on their agreement (also regarding documents, amounts and payment dates), on official information and other documentation contained in the administrative file.
The examination of witness I... proved important, not only for the knowledge she had about the facts (financial director of the claimant in 2014), but also for the impartiality that her testimony revealed. The tribunal valued to that extent the testimony of the witness in question, in the part in which she "descended" into the concrete and revealed logical and congruent coherence and helped to clarify some of the facts and motivations associated with the claimant's management decisions.
However, her testimony was not clarifying, among others, on the matter of discounts and allowances, in matters that go beyond the "logistics penalties" issue, and in part of the impairments, as will be detailed below. The witness's testimony, on these matters, did not go to concrete and detailed explanations of each of the situations (it remained at generic considerations) and did not convincingly explain the company's behaviors and motivations.
3. Legal Matters
3.1. Issues to be Decided
As accepted by the parties, the issues to be decided in the present proceedings are as follows:
a) Alleged lack of grounds for the acts of assessment of Corporate Income Tax and compensatory interest.
b) Alleged omission of an essential formality – lack of prior hearing.
c) Invoice not recorded as revenue: €70,285.30.
d) Discounts and allowances on sales: €76,085.60.
e) Non-deductible expenses for tax purposes – "accruals": €169,454.54.
f) Non-deductible expenses for tax purposes – interest: €735,957.20.
g) Impairments on customers: €880,136.65.
For systematic convenience, each matter will form an autonomous chapter of the award – where relevant facts, the positions and arguments of the parties will be retained, by reference, the applicable laws and law will be referred to, and the tribunal's decision will be made, before this entire body of factual and legal matter.
It should be noted at the outset, given its relevance to the decision, that the tribunal is bound, by legal obligation, to the subject matter of the proceeding introduced by the parties, both as to the facts set forth by the parties (except by official knowledge), and as to the arguments presented by the TA to justify the corrections. Thus, for example, the Claimant provides a minimal explanation of many items under "discounts and allowances on sales," both in the text of its initial pleading and in the examination of the witness it has called – whereby the tribunal must analyze the matter on the basis of this data (and only this); the Tax Authority does not make the corrections based on the institute of transfer pricing – whereby the tribunal cannot analyze the issues from the perspective of that institute, nor even indirectly, by reinterpreting the legal arguments presented, as if recasting them into those other possible institutes but not brought to the grounds.
3.2. The Alleged Lack of Grounds for the Acts of Assessment of Corporate Income Tax and Compensatory Interest
The claimant invokes in its initial pleading that the assessment is not grounded, since that document does not explicitly set out all the grounds, of fact and of law, that would justify the administrative act in tax matters (assessment of tax and compensatory interest) – nor is there even an express or implicit reference to the prior grounds already delivered to the taxpayer; and such would be legally required, according to the claimant's thesis. And as regards compensatory interest, the claimant further believes that there is no grounding whatsoever, since its grounds are not stated, but only that it results from improper receipt.
The respondent contends by saying, in summary, that the grounds are based on an inspection process, which is prior to the act and exhaustive – allowing the claimant to know all the facts and arguments on which the tax authority's position is based, both as to the amount of tax, and in relation to interest.
The tribunal decides that there is no lack of grounds for the act of assessment of Corporate Income Tax and compensatory interest.
The tax authority conducted an inspection process of the taxpayer, where it analyzed various transactions and, at the end of the procedure, drew up an extensive inspection report (the grounds) where it sets out, in an organized, clear, exhaustive and sufficient manner, what the grounds and reasoning are (with attached documents) that underlie each of the corrections – and which subsequently determine the assessment of tax and interest. An average recipient, such as the taxpayer, perfectly understands the content and grounds in this proceeding. It is evidenced by the content of the initial pleading, in which the claimant rebuts the arguments of the grounds, in normal adversarial proceeding, a sign that it understood them perfectly. The requirements for grounds described in articles 268 of the CRP, article 77 of the LGT and articles 124 and 125 of the CPA were thus met.
A different matter, but which also does not merit censure from the tribunal, is whether the assessment of tax and interest (more precisely, the document of the assessment of tax and interest) must contain the grounds or at least indicate them by reference, under penalty of this formal non-compliance determining the illegality of the assessment due to lack of grounds or omission of an essential formality. The tribunal understands that there is no illegality, holding that the additional assessment act is grounded by virtue of being based on the inspection report, even if it does not expressly or implicitly refer to it – given that it is situated, it cannot fail to be situated, within the respective legal and factual framework, perfectly clear, elucidating and duly notified. That is, the taxpayer (claimant) knows that this assessment of tax and interest results from grounds, as a consequence of an inspection to which it was subject (cf. in this sense, STA decision of 9/5/2001, case 025832).
There is, likewise, no lack of grounds as regards compensatory interest. Compensatory interest, by legal requirement, results from the delay in the assessment due to a fact attributable (culpably) to the taxpayer (article 35 of the LGT). Now, from the grounds it follows that, in the TA's opinion, there was a delay in the tax (Corporate Income Tax for 2014) due to acts attributable to the claimant – and therefore, compensatory interest is legally and sufficiently grounded.
3.3. The Alleged Omission of an Essential Formality – Lack of Prior Hearing
The claimant invokes that it would not have been given the opportunity to exercise prior hearing (on the grounds and the accrual of interest) – a situation which would constitute an omission of an essential formality.
The respondent refutes the argument, invoking that the taxpayer exercised prior hearing and was expressly notified thereof in the inspection procedure.
Now, in accordance with the facts proven in the proceedings (proven fact c) above), the claimant was notified to exercise the right of prior hearing; and it exercised that right; and the arguments raised were taken into account in the final decision, even leading to a reduction in the correction to taxable income contained in the preliminary final report – see proven facts c). Therefore, there is no omission of an essential formality, nor does the assessment suffer from any illegality as a consequence, as regards this hypothetical ground, including in relation to compensatory interest, since from the environment of the arguments of the preliminary inspection report it can be inferred, according to an average criterion of analysis, that the TA believes that there was a delay in the assessment and payment of the tax due to a fact attributable to the taxpayer (cf. article 35 of the LGT).
3.4. Invoice Not Recorded as Revenue: €70,285.30
The tax authority increases taxable income by €70,285.30, as it believes that this amount results from invoice no. 1410140 whose customer is E..., but that this amount was not taken to accounting and tax revenue, as it does not appear in the claimant's income statement (but only from balance sheet accounts), in violation of article 20 of the CIRC.
The Claimant alleges, in its defense, that it is true that the invoice was not taken to accounting and tax revenue, but with a justifying reason: the claimant served as an intermediary between the end customer (E...) and the producer (C...) – and agreed to do so, given the financial difficulties of C..., which was also the claimant's supplier. Thus, C... invoiced this amount to the claimant which "re-invoiced" it, at the same price to E...; and which chose not to record either the revenue to accounting and tax result (to the income statement); nor the associated symmetric expense, of the same amount, to accounting and tax expense – and which passed all these transactions only through balance sheet accounts; and which should be accepted the claimant's behavior because there was no harm to the State.
As mentioned above, the tribunal found proven the essential facts indicated by the claimant: the revenue and the expense, of the same amount, were not taken to the income statement; that this situation only occurred on this amount, represented only by one invoice; that the claimant puts forward a purportedly legitimating justification (financial difficulties of C... and assistance to that supplier).
The tribunal understands that the values of revenues (and expenses) should have been taken to the income statement for the year to which they related. This is not what the claimant did and therefore there was a violation of accounting standards and applicable tax provisions.
However, the tribunal, in the search for a legal and just solution, must take into account the other circumstances of the case, namely:
a) There was no tax evasion – the tax situation would have been the same, had the revenue and the expense been recorded in the income statement.
b) There was no tax avoidance whatsoever, considering the transaction as a whole.
c) That is, the claimant would not have paid more tax if it had complied with all the formalities and requirements of accounting standards and applicable tax provisions.
d) The tribunal must take into account the fact that its decision cannot lead to a violation of the balancing between revenues and expenses (article 18 of the CIRC): one cannot arrive at a solution that taxes only the revenue, but does not fiscally incorporate the corresponding expense.
e) The claimant has a plausible justification for this behavior (assistance to C... and equality of the value of revenue and expense) and this behavior is not widespread in the year in question – it consists only of one invoice.
For all these reasons, the formal violation of accounting standards and applicable tax provisions for recording revenues (and expenses) in the income statement should be tolerated, when it now proves necessary to safeguard the justice of this specific case, where this transaction is not linked to any result generated – since the expense equals the revenue. To tax the revenue, as the tax act seeks, without considering the associated expense of the same value – would correspond, for the tribunal, to an unjust decision, because it violates justice and the true tax capacity of the taxpayer (article 55 of the LGT). It would amount, in fact, to taxing an apparent revenue, or rather, a non-revenue. For all these reasons, the assessment is annulled in this segment.
3.5. Discounts and Allowances on Sales: €76,085.60
The Tax Authority invokes (p. 24 of the inspection report) that there is a set of situations of discounts and allowances on sales that the taxpayer recorded as decreases in revenues in 2014 (in accounting and tax terms), but in which i) there is no supporting documentation (at least it was not submitted by the claimant – article 75, no. 2, para. b), of the LGT and article 123 of the CIRC), ii) and what was submitted does not allow assessment of compliance with the rule of specialization of exercises (whether they are expenses of 2014 or of another year – article 18 of the CIRC) and of indispensability (article 23 of the CIRC, in the new wording of this provision introduced by the corporate income tax reform).
The claimant contends that there is supporting documentation – email exchanges and contracts – that this decrease in revenue, and increase in expense respectively, relates to facts that occurred in 2014 and that in that year were already quantifiable in a reliable manner; and that for this reason the rule of specialization of exercises was not violated, but rather complied with, and the causal nexus between revenue and expense in the 2014 financial year was observed.
The tribunal decides as follows:
a) Faced with the situations in question (discounts and allowances – which the taxpayer claims relate to 2014, but there is documentation relating them to 2015) and due to the concrete nature of these operations (namely, reasons for price reductions or rebates) – it is understood that the Tax Authority has legitimacy to require the taxpayer to provide documentation and concrete explanation of the reasons and grounds that legitimize the recording of these discounts and allowances, their amounts and justifications in the year in question, under penalty, if such explanation is not provided, of this decrease in revenues (and respective increase in expense) not being considered in tax terms in the financial year in question. This is the conclusion drawn from the interpretation of articles 75 of the LGT and articles 18, 23 and 123 of the CIRC.
b) The claimant has proven the case of the logistics penalties – of €30,000.00 with customer F..., because:
- It provides email exchange with customer F..., which proves that it delayed in delivery of that customer's orders in December 2014.
- The claimant accepted the penalties associated with this delay, in the amount of €30,000.00, which were only required in the following year (2015) – in two credit notes, issued in 2015, in the amount of €30,000.00, with the description of "logistics penalties".
- In 2014, the claimant already recorded this decrease in revenues, in the amount of €30,000 – as an increase in expenses.
The tribunal therefore understands, in this case, that the increase in expense relates to 2014; that the principle of specialization of exercises, described in article 18 of the CIRC, is complied with; and that there is sufficient documentation (email exchange and issuance of credit notes) and legitimating explanation, which leads to acceptance of the increase in expense, by meeting the requirements of articles 23 and 123 of the CIRC: delays in deliveries are something undesired, but possible in companies operating with the aim of profit, with the most varied justifications – and are assumed to be real impoverishments, obviously undesired, but effective, which decrease the values of revenues and profits of the organization. This item of €30,000.00 constituted a reduction in the actual tax result of 2014 and to that extent the assessment should be annulled.
As regards the other situations included in the discounts and allowances matter in the amount of €46,085.60 (€76,085.60 - €30,000.00) – the tribunal understands that the claimant has not proven the facts on which its challenge is based.
In concrete terms, the respondent raised specific facts that allow it to disregard the decrease in revenues, and respective increases in expenses made in 2014: the wording of the invoices does not allow assessment of which decrease in revenues, and respective increase in expenses, they effectively and concretely concern; and there are signs that they relate, in some cases, to 2015 (and not to 2014).
Now, faced with this, the claimant made no counter-evidence (or allegation) in concrete terms: It did not allege or prove: a) what these situations concretely refer to (namely, coop advertising, rebates); b) what the exact and detailed justification is for their recording in 2014; c) documentation and justification underlying these situations and what they concretely refer to; d) that there was no duplication of the decrease in revenues in another financial year, in which the situations could potentially also relate; e) does not indicate any concrete plausible and legitimating justification to explain the behavior it adopted – of considering them as decreases in accounting and tax revenues of 2014.
Thus, the tribunal understands that these corrections should be maintained – due to lack of documentation and legitimating explanation, by interpretation of articles 18 and 23 of the CIRC: it is not proven to which financial year the decrease in revenues, and respective increases in expenses, should be assigned; the actual and concrete existence of these allowances and discounts is not explained, in order to then assess their correlation with obtaining or guaranteeing the revenues subject to Corporate Income Tax.
3.6. Non-Deductible Expenses for Tax Purposes – "Accruals": €169,454.54
According to the TA's grounds, the corrections – for expenses not deductible in tax terms under the designation of accruals – concern 3 situations: a) tax and financial consultants (company G...) – €3,650.00; b) sales consultants (A... Spain) – €142,114.17; c) others – €23,690.37. And all these cases were not accepted in tax terms by the TA, due to alleged lack of documentation, justification of expenses, violation of the rule of specialization of exercises (article 18 of the CIRC) and alleged non-indispensability for the organization (article 23 of the CIRC, in the new wording of this provision introduced by the corporate income tax reform).
Regarding the tax and financial consultant matter, the grounds further believe that the 2 invoices were issued in 2015, and should therefore be considered as 2015 expenses and not 2014 expenses.
The claimant argues that these expenses relate to the year 2014, in accordance with the specialization of exercises, as the service relates to that year.
Regarding the sales consultants matter, invoice 01/14 is in question in the amount of €72,000, dated 30/12/2014, issued by A... SL (Spanish company), with the following description: "for the commercial services rendered to its clients in Spain in the financial year 2014". The TA's grounds further believe that the invoice, by its date and wording, and in the absence of complementary documentation, does not allow clear and unequivocal assessment of what services were actually rendered and that the expenses were incurred in the interest of the company.
The claimant argues that the invoice encompasses all the expenses it incurred in the year 2014, with the service contracted to the Spanish company for support to its customers in Spain.
Regarding the other unaccepted expenses (and also part of the values of sales consultants), the TA's grounds further believe that the taxpayer presents no comprehensive justification to explain the movements to credit and debit of the same account, canceling each other out and because the expense in question remains, in accounting and tax terms.
The claimant alleges that these are real and actual expenses of 2014 – and that it recorded them in the wrong accounting account and when it became aware of this accounting classification error, it proceeded with the reclassifications by debit and credit.
Still regarding the tax and financial consultants, the tribunal detected an error in the sum of the two invoices issued by G... (€1,500 and €2,250), which total €3,750 and not €3,650, as indicated in all documents of both parties.
The tribunal, after weighing all the arguments of the parties and all the documentary and testimonial evidence, makes the following decision.
It annuls the assessment, in the part relating to tax and financial consultants (company G...), in the amount of €3,750.00 change to taxable income, on the following basis.
These expenses are duly documented, are necessary (are linked) to the activity of the taxpayer and justified for the activity of the claimant – it contracted this consultant to provide services to improve the exercise of its activity (service on how to proceed with sales in Spain, and specifically in the Canary Islands) and to support the transfer pricing process. Therefore, the matter only concerns which year these two expenses incurred by the claimant relate to.
And on this point the provisions of the STA Decisions of 29/2/2000, published in the BMJ no. 494, March 2000, p. 182 et seq., of 5/2/2003, case 1649/02, of 25/1/2006, case 830/2005 and of 2/4/2008, case 807/07 (at www.dgsi.pt) are followed. More relevant than ascertaining the exact year to which the expenses relate, even though we are in violation of the specialization of exercises (should it occur), the truth is that it is, in this specific case, always formal and involuntary, whose erroneous recording (should it occur) is not reconducted to voluntary and intentional behavior, with a view to operating the transfer of results between financial years. The relevant circumstances of the case for the decision are as follows:
a) The amounts in question are low and negligible;
b) The claimant sustains its position on a legal, logical and plausible interpretation of tax law – if the services relate to 2014 and concern that year, the expense should be recognized in that period, even if invoiced later.
c) There is no intention of temporal deferral of the tax – nor an attempt at duplication of the expense. The claimant only recorded it once, in 2014, based on acceptable reasons.
d) The creation of a just solution if the assessment were not annulled would require that the claimant engage in a bureaucratic procedure to recognize the expense in the other year (official revision), contingent and contentious, without material gains – and whose justice is achieved with the acceptance of the formal violation of the specialization of exercises, even though the taxpayer could possibly have recorded the expense in question in a period different from that indicated by the principle of specialization. That is, for the tribunal it is not even necessary to delve into what the correct financial year is for the accounting and tax recording of these expenses. It is sufficient to conclude that even if the formal rule of specialization of exercises has been violated, the assessment should be annulled at this point, for the prevalence of the material rule of tax capacity (to avoid the risk of the expense never being accepted in tax terms, due to the effect of non-annulment, pure and simple, because it does not produce automatic effects in other financial years). It is understood, moreover, that the tax authority's grounds would have to make this global assessment – and not proceed with the assessment at this point, by acceptance of the formal violation of the specialization of exercises, given the circumstances of the case and the prevailing protection of justice and tax capacity. It should be added that we are dealing with a one-off situation (two invoices for the same transaction, with low amounts) and with a plausible justification indicated by the claimant for carrying out the procedure it undertook (it believed that the service was completed in 2014, but was only invoiced in 2015, due to the behavior of the counterparty, the claimant taking care to avoid duplication of the expense – it did not take it to accounting and tax cost in 2015.
Regarding the sales consultants matter, the tribunal makes the following decision. The tax authority chose the grounds it understood to justify the tax act – and it is on that that the tribunal has to pronounce itself. That is, the tax authority does not argue that the services did not exist (as, in that case, it would have indicated and assessed on the assumption that there had been a simulation and tax crime); similarly, the tax authority does not construct the correction on the basis of the institute of transfer pricing, between the claimant and the Spanish company that provides the service. If it does not base it on article 63 of the CIRC, the award cannot resort to that material and legal arsenal for its decision.
Thus, it is assumed that the services were rendered and that their price is market price and corresponds to the amount in question, from the perspective of an independent third party. The grounds are based solely on the lack of documentation of the expense and the very synthetic character of its description. It is understood that there is no problem with these continued services (commercial support services to the claimant's customers) that are provided throughout the year being invoiced only at the end of the year (and, with this, the specialization of exercises to record in 2014 the expenses of this caliber relating to this financial year is complied with) – that is, this vicissitude does not, by itself, put into question these expenses; it likewise understands that it is proven in the proceeding the reason for using the services of the Spanish company – to monitor the claimant's Spanish customers, with the understanding that it does not have a commercial department in the neighboring country (and this is an option of the company, between "internalizing" or "externalizing" the commercial support service for sales, which the tribunal must accept this freedom of choice, in the choice it makes of the interpretation of article 23 of the CIRC). Before this evidence, it is concluded that the services are correctly and sufficiently described and justified and that there is sufficient evidence of their documentation, effectiveness and indispensability for the organization. Therefore, the assessment is annulled as to this point.
The other situations qualified as "sales consultants" and "others" are divided into two cases:
a) The matter of invoices 002/14, of 18/3/2014, in the amount of €12,268.61; invoice 005/14, of 10/3/2014, in the amount of €32,812.47 and invoice 14/14 of 4/12/2014, in the amount of €24,709.76 - which totals a correction to taxable income of €69,790.84, also designated as "sales consultants".
b) The invoices recorded in account 622119, in the total amount of €23,690.37, designated as "others".
Regarding the three invoices in question (002/14, 005/14 and 14/14) the following occurred: these invoices were initially entered by the claimant in account 622105 (on 18/3/2014, 18/3/2014 and 22/12/2014, respectively) which is an expense account, for external service providers, designated as "management consultants" (as appears in doc. no. 22 of the initial pleading); subsequently, still in 2014, the claimant discovered that it had incorrectly accounted for these amounts, which should instead have appeared in account 622104, which is also an expense account, for provision of external services, but under the designation "sales consultants"; the claimant, respectively on 30/4/2014, 30/4/2014 and 31/12/2014, corrected this situation (cf. doc. no. 22, of the initial pleading); that is, it removed these expenses from the management consultant line and placed them in the sales consultant account, via operations of credits and debits between these two accounts; thus, these expenses were ultimately correctly accounted for and contributed only once to the claimant's 2014 tax result.
Errors, despite being undesirable, are intrinsic to a complex accounting system with many operations of organizing reality, with active human intervention. Now, errors when corrected (by legal requirement) cannot obviously result in the non-acceptance of tax expenses. The taxpayer demonstrated the error, explained its cause, detailed the way it corrected it in accounting terms, and proves that there was no duplication of records. Thus, faced with this justification and proof, suitable and concrete, as proven in the proceedings, the annulment of the additional assessment in this segment is required.
We are dealing with expenses incurred by the claimant in the exercise of its activity; which contracted consultants to promote its sales and activity, and for that paid them the fees in question; and the transactions are correctly accounted for, if analyzed globally – indeed these reclassifications aim at adherence to reality and the truth revealed by the accounting; and it means, finally, that these expenses were taken to accounting and tax cost, only once (there are no duplications of expenses) – in that they were inserted in account 622104, by transfer, at the same time and by the same amounts, from account 622105.
The TA further indicates that the descriptions of the invoices ("TSA fee servisse" and then with the indication of the month to which it relates) issued by J... (Swiss law company of the E... group) (cf. doc. no. 20 of the initial pleading) would not allow knowing what services are actually provided by the Swiss company and what utility they would have for the claimant's activity (especially since invoice 005/14 says TSA fee spain and not Portugal).
But these arguments do not hold. The invoices, beyond these expressions, also indicate "details attached" (with descriptive attachment) that is, it is understood, also by their periodicity, and by the description, that they relate to a service contracted with this company in the E... group, to serve as sales consultant to help its sales, whose price is formed through the attached schedule. And saying "spain" in one of them does not prevent acceptance of the expense as it certainly relates to the claimant's sales in Spain.
What is relevant in this case is rather an illegal view of the question by the TA: it refused the tax acceptance of these invoices, correctly accounted for and with satisfactory descriptions; if the TA still had doubts about its tax acceptance, it should have asked the taxpayer – and not refuse its acceptance due to poor accounting or deficient description (it being certain that it never truly questions its veracity). The legal point is the presumption of veracity of correctly organized accounting, as is the case (article 75 of the LGT); and the TA has not introduced concrete and revealing indicators of the elision of this presumption of veracity.
For these reasons, the annulment of the additional Corporate Income Tax assessment in question is required, in the part relating to these three invoices, in the total amount of €69,790.84: invoices 002/14, in the amount of €12,268.61; invoice 005/14, in the amount of €32,812.47 and invoice 14/14, in the amount of €24,709.76.
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Regarding the other unaccepted expenses under the nomenclature of accruals, in the amount of €23,690.37 correction to taxable income, the tribunal makes the following decision: the TA did not accept these expenses in two invoices 76/15 and 77/15 issued by K... on 27/3/2015 and invoice 1/93 issued by L... on 25/4/2015 – due to the rules of specialization of exercises: if the invoices are from 2015, then the expenses should be recorded (accounting and tax) in 2015 and not in the previous year (2014), as the claimant did. The claimant, in turn, does not fully explain the reasons for this situation, nor does it explain either that there was no duplication of expenses (considering them in 2014 and 2015). Therefore, the assessment is not annulled in this segment – due to the legality of the grounds and the assessment at this point.
3.7. Non-Deductible Expenses for Tax Purposes – Interest: €735,957.20
The grounds believe that the interest incurred (recorded accounting and tax-wise) relating to the capital contributions made by the dominant company should not have tax acceptance by the claimant (debtor and obligated to pay interest), due to lack of documentation (that the presentation of contracts is not sufficient) – in violation of articles 23 and 123 of the CIRC.
The Claimant alleges that the interest expenses are documented (there are capital contribution contracts) and that they relate to the acquisition of trademarks by the claimant, which are key assets for the exercise of its activity.
The tribunal annuls the assessment at this point, based on the following arguments:
a) There is no doubt (no one contests in the proceeding) that the interest incurred relates to the capital contributions made by the partner with a view to acquiring the product trademarks for the claimant to develop its activity – and therefore, such expenses are associated with the acquisition of assets, for the development of the claimant's activity, being therefore indispensable and related to its activity (within the terms of article 23 of the CIRC); and the tribunal cannot scrutinize, within the scope of article 23 of the CIRC, the economic soundness or business opportunity of these undeniable options and management decisions, for purposes of non-acceptance of the tax expense.
b) It is obvious, likewise, that the grounds do not specifically address the acquisition price of the trademarks or the interest rate in question – nor based on the institute of transfer pricing or simulation or abuse of law. And thus being, the tribunal cannot examine the act on the basis of this framework, nor even indirectly or by substitution.
c) It only remains to analyze the documentation of these expenses: and here, there is no doubt that there is sufficient and adequate documentation for these expenses. Starting with the capital contribution contracts themselves, where the loaned amounts, the term of the contract and the annual interest rate are indicated. Therefore, by simple mathematical equation it is possible to calculate to the cent the value of the annual interest, as the taxpayer did, through external documentation, since the contract is also signed by the lender and not only by the claimant.
d) Faced with this situation, the invoice is dispensed with – especially since there were no interest payments in this year (by contractual agreement between the parties). But interest is not accounted for when paid, but when owed by the passage of time. And the existing documents (capital contribution contracts) are justifying documents and adequate to legitimize the correct accounting of these financial expenses (cf. article 123 of the CIRC).
e) Moreover, interest is accounted for by the debtor under the rule of specialization of exercises (article 18 of the CIRC) – in the sense that it is accounted for as an expense, not when it is paid (by the contract only at the end), but in its annual quantification. Thus, the fact that in 2014 there is no payment of interest – a financial movement – does not imply that they are not accepted in tax terms, nor that there must be any documentation from both parties, specifically on its annual quantification. This is not necessary, as it already results, in a total and absolute manner, from the contract concluded between the parties.
There is another smaller interest correction, in the amount of €10,475.00 relating to "other interest" (account 691803). Now, as to this point, the grounds are not clear, nor sufficient – they are vague and imprecise – about the reasons, facts and causes that justified the correction. The tribunal's position is that there is a lack of grounds and violation of law, due to erroneous interpretation and application of articles 23 and 23-A of the CIRC (and the TA has not overcome the presumption of veracity of accounting at this point, article 75 of the LGT). As a rule, interest incurred is an accounting and tax expense. For it not to be, the tax authority must indicate concrete reasons that lead it to seek to reverse this general rule. Since nothing was done about the amount of "other interest," the assessment is annulled, also as to this point.
For all these reasons, the additional Corporate Income Tax assessment in the matter of capital contribution interest, in the amount of €735,957.20 correction to taxable income, is annulled.
3.8. Impairments on Customers: €880,136.65
The TA's grounds divide these corrections into two matters: (i) losses on impairment of customers, in the amount of €395,789.98 (via the operation of company C..., SA); and (ii) losses on impairments on other debtors, of €484,346.67, thus broken down: a) €391,891.35, relating to credits for purchases of raw materials on account of C...; b) €53,379.03, relating to credits for secondment of the claimant's personnel to C...; c) €39,076.29, relating to credits for transfers to D... SGPS (the claimant's parent company).
As regards (i) losses on impairment of customers, the grounds state: In October 2014, the claimant acquired the credits that the E... group had against C..., for the value of €395,789.98 (when the nominal value of the credits amounted to €881,740.96); the debtor (C...) had a PER process during the 2014 financial year and insolvency was declared in January 2015; The TA does not accept the tax impairment of the credit made by the claimant in 2014, in the amount of €395,789.98 (acquisition value of the credit), because it does not result from the normal activity of the claimant as assessed by its corporate purpose; and it would constitute an abuse of impairments, given the circumstances of the case; and impairment could only occur after homologation of the PER by the court, which would not have happened in the present case.
The Claimant defends its claim, in the sense that this impairment falls within a credit resulting from its normal activity, analyzed by its corporate purpose and in fact, as a whole – and considering the identity of corporate purposes between itself and the debtor C...; the financial difficulties of C... do not remove the normal character of the credit; and there were no doubts that the company was in a situation of de facto insolvency at the end of 2014.
The (ii) losses on impairments on other debtors (company C...), in the amount of €484,346.67 are broken down into three situations, in which the grounds argue the following to justify the tax correction:
- As regards the amount of €391,891.35, relating to credits for purchases of raw materials on account of C...: the claimant purchased raw materials which it sold without margin to C... (at acquisition cost); unnecessarily incurred credit risk, with no gain whatsoever; these sales to C... do not constitute normal activity of the claimant so the impairment cannot be accepted (C... ended up not paying for some goods, which led to the constitution of impairments for the amount of €391,891.35); the PER was not homologated, and therefore the constitution of tax impairment is not legitimated.
- As regards the amount of €53,379.03, relating to credits for secondment of the claimant's personnel to C...: the claimant seconded personnel to C... (which C... did not pay and the credit fell into arrears and was subject to impairment); according to the TA this credit (and impairment) does not fall within the criterion of normal activity of the claimant, so it cannot constitute a tax-accepted impairment.
- As regards the amount of €39,076.29, relating to credits for transfers to D... SGPS (the claimant's parent company), the TA understands that it cannot be considered a tax-deductible impairment, in accordance with article 28-B, no. 3, para. c), of the CIRC, in that these are credits held against a partner holding more than 10% of the company's capital directly or indirectly.
The claimant refutes these arguments, in all three situations, based on the following:
As regards the secondment of raw materials, it understands that it had direct and own interest in this activity and assistance to C..., which was its main industrial supplier and could not find itself in the contingency of losing it, as this would cause damage to its activity (it would be left without products to sell). Therefore, this activity falls within its normal business activity, given the circumstances of the case. Without this, it could not obtain products and sales. C... had been in PER process since April 2014.
As regards the secondment of personnel, C... was left without several departments, financial, commercial and manufacturing (as a result of its financial difficulties) and the claimant, through its employees, assisted C..., in personnel secondment, which C... was left in debt for such credits. Faced with this specific case, it falls within the claimant's normal activity – without the personnel secondment the claimant would have great damage in its normal activity, as C... produced products very relevant to the claimant's activity.
As regards D..., the claimant invokes in its defense a lack of grounds on the part of the TA.
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In all cases of the claimant's credits against the supplier C..., the analysis and application of the tax institute of impairments of credits is always at issue (by acquisition from third parties, by the E... group, by personnel secondment and by sale of goods), which now needs to be analyzed in detail.
Impairments of credits are recognized in tax terms, when they cumulatively meet the following requirements, made concrete to the present case (articles 28-A and 28-B of the CIRC):
a) There is an impairment of accounts on these matters, in 2014 or in a prior year (in the present case, this is verified and is not even put into question).
b) The risk of non-recoverability is duly justified – among other cases, if the debtor (C...) has pending, on 31 December 2014, a Special Revitalization Process or Insolvency Process.
Tax law indicates only that at the end of the year (2014), the debtor has pending a PER or Insolvency Process – and this manifestly occurs, in formal terms (the PER process followed its procedures during the 2014 financial year and there was a request for insolvency in November 2014) and in substantive terms: at the end of 2014, C... was in a very difficult economic situation, which motivated, also in January 2015, the PER process resulting in the declaration of insolvency, by the will of the creditors.
c) The impairments are "related to credits resulting from normal activity" (this is the literal expression of the law – article 28-A, no. 1, para. a), of the CIRC).
This legal expression is not easy to interpret. To analyze its content and subsumption to the present cases, several relevant corollaries are drawn:
The qualifier "normal" associates itself with the activity of the creditor (and with the credit that results from that concrete activity): it possesses a prescriptive sense, that is, it is not merely programmatic. Impairments of credits are not accepted which result from non-normal activity of the taxpayer.
The qualifier "normal" associates itself with the activity of the creditor, without interference in the subject's economic options and their management freedom. A large (voluminous) credit against a customer who purchases the products produced and sold by the company results from normal activity (emanates from the "heart" of the company's productive activity), despite the fact that the company, in a posteriori analysis, should have "cut off" the credit (supply of products or services) earlier, to avoid the mounting of uncollectible amounts. Similarly, normality is not about the debtor's solvency, but about the creditor's activity.
There are clear situations of normal activity, in which, in principle, they emanate from normal activity – when credits result against customers (by sale of products and services marketed or produced by the company and integrated into its corporate purpose and concrete activity); but it is important to establish criteria on the remaining situations, in the "gray area".
The interpretation of the provision in question, in that "gray area" (as happens in the present cases) cannot result, on one hand, in the permission of a TA control over company activity, scrutinizing any and all management act, from an angle of casuistic and discretionary interference with the company's economic options.
But, on the other hand, given that the expression is not merely programmatic, but has prescriptive content, this means that impairments of credits resulting from non-normal company activity are not accepted, in tax terms (even if they are impairments in accounting terms).
This analysis of the normal character of the activity is not assessed in the abstract (merely against the type of business in question), but must be filtered and examined in concrete, before the specific circumstances of the case; before the real and actual situation of the company in question, and its circumstances.
The expression "normal activity" functions as a general clause that seeks to behave teleologically as a repression of tax abuse of impairments. This is what happens, in homologous terms, when one speaks of "effective" residence – one seeks to avoid apparent residence, to obtain abusive advantages based on residence.
In essence, the abuse of impairment (credit from non-normal activity) occurs when the taxpayer grants credit to a third party, no longer with the essential aim of safeguarding its business and activity, but with the main (or relevant) purpose of having a tax impairment recognized. It is no longer concerned with the activity, but with third-party interests and the tax gain associated with this credit impairment.
Of course, this interpretive guideline must be assessed against the specific case and it can be said that in credits against customers (resulting from the sale of raw materials and secondment of personnel by the company) it is as if presumed that it results from normal activity; and that, in the remaining cases – namely, as in the present case, in credit to suppliers and which result from the purchase of credits from third parties – it is the taxpayer that must explain and prove the necessity and connection of this credit with its "normal" activity.
Faced with these interpretive notes, we are now in a position to resolve the concrete cases, regarding the credits against the supplier C... – (i) credits acquired from third parties against C...; (ii) credits against the raw material supplier (iii) credits against the supplier for personnel secondment.
As regards credits acquired from third parties against C... (€395,789.98):
The weighing of the proven (and unproven) facts points to the following: a) the credits in question result from the initial activity of third parties (E... group) against C..., therefore outside the claimant's activity, which is not a party to the transactions at the origin of the credits; b) the claimant becomes creditor, by acquisition of these credits for a value lower than the nominal value; c) a short period elapsed between the acquisition of the credits and the constitution of the impairments (approximately 3 months); d) in the claimant's activity there is no activity of purchase of credits against companies in difficulty to attempt to recover or consolidate them – and there are companies specialized in this type of business, of almost financial character; e) the connection with the normal activity of the claimant must be assessed at the concrete moment of acquisition of the credits: what were the reasons for the claimant to buy from third parties (E... group) credits of a company in difficulty, which are known to the claimant, that is, to what extent the purchase of these credits relates to the claimant's normal activity.
The claimant has not concretely proven these motivations – to fully explain the resubsumption to its normal activity:
- In theory, it could have acquired them to prevent the insolvency of debtor C... (and thus try to subsume them to its normal activity) and thus continue to have a company that produces its products, but, to do so, it would have to prove, in concrete terms (which it failed to do), that the value of the credits acquired, added to those already held by the claimant, gave it a significant decision-making power in the C... PER (or that the claimant had an implemented strategy of "massive" purchase of credits against C... to achieve this goal – which could have failed, but which existed in practice; but it did not make that proof, in concrete; it only alleged that this purchase of credits also aimed to prevent the insolvency of C... (and approval of the PER), but did not prove in concrete what was the value of its credits (original and acquired) against the total debts of C..., nor agreements (or attempts) or meetings with other creditors for the viability of the company.
- In theory, the purchase of these credits could also be related to the maintenance and strengthening of the commercial relationship with its customer (E... group): C... and the claimant were part of the same group of companies; the E... group had credits against C..., and because the companies were in the same group, the claimant could fear that the E... group would cease buying products from it, as retaliation for displeasure with non-recovery of credits against a group company – and the claimant would purchase these credits to maintain the E... customer. But the claimant proves nothing in concrete in this regard: it does not indicate, not even in numerical terms, what the relevance of the E... group customer is; it was not proven that E... could cut off the commercial relationship with the claimant, following non-recovery against C...; and it was not proven that the assignment of credits aimed at avoiding this concern (and whether or not it had produced the intended effects).
And the burden of proof – that the credits result from the claimant's normal activity – belongs in this specific case to the claimant: they do not result from original sales of the claimant's goods (to a customer); they result from assignment of credits, with the understanding that the claimant does not engage in this activity. And the claimant has not concretely proven the reasons for this acquisition (and existence) of the credits, in the sense that they would result from its normal activity.
The claimant further invokes other arguments, but in vain, to purportedly justify that this impairment results from credit resulting from its normal activity.
The identity of corporate purposes between itself and debtor C... is irrelevant, in itself, to assess the normal character of these credits in its activity, as they are not originally held and constituted by the claimant. Of course, the claimant could prove that it acquired these credits for the purpose of taking control of or de facto power over C... to thereby increase its capacity, production and activity. But this proof is not made in concrete by the claimant. It does not prove, in concrete, as seen, what voting rights as creditor in PER it came to hold; it does not prove what the plan, in concrete, of operational concertation projected with C... to increase its joint and concerted activity.
It is true, as the claimant indicates, that C...'s financial difficulties do not, by themselves, remove the normal character of the credit: the matter is, as seen, more comprehensive: it is not proven that this credit acquired (and later taken to impairment) by the claimant had any concrete relationship with the claimant's normal activity.
Terms in which the correction promoted by the Tax Authority is maintained in relation to credits acquired from third parties against C..., in the amount of correction to taxable income of €395,789.98.
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As regards credits relating to purchase of raw materials on account of C... (€391,891.35) and secondment of claimant's personnel to C... (€53,379.03):
It is proven in the proceedings that the claimant had its own selfish interest in assisting C..., a company in financial difficulties – whether by selling it, without margin, raw materials which it would then purchase finished products from C... (after the industrial work and processing of C...); the claimant was only a commercial company, and C... was an industrial company – and the main supplier of the claimant's products. The immediate stoppage of the supplier (without these assists in the purchase and sale of raw materials and without the secondment of personnel) had serious damage to the customer (claimant), which could not replace the supplier overnight. Thus, the claimant assisted C... (purchased the raw materials for its products and sold without margin to C..., which paid later with the delivery of goods and the claimant seconded part of its personnel – hours of work of its employees – to help the survival of the supplier). Of course, with this it was able to create larger stocks of its products, to deal with market situations and with these "assists" it gained time to try to find a replacement supplier for the one in question, in the necessary time. Until then, it assisted it – but in its own interest and in the maintenance of its normal activity; it could not even consider being left without the supplier and products – it had considerable economic dependence on the supplier. If it lost the supplier, without ensuring production elsewhere, the claimant would be left without product to sell – and this would result in immediate, concrete and considerable damage.
That is to say: the claimant granted these credits (for raw materials and personnel secondment), with a view, in concrete, to obtaining the products – which it then sells, in the core of its commercial activity. Faced with the difficulties of supplier C..., it sells it the raw materials which will be subsequently incorporated in the products it will acquire (and made a compensation of credits, if possible); similarly, it cedes part of its workforce to C... (which does not have it, given the crisis it is in), to enable C... to be able to produce the products, to market them, to the claimant and others and to enable it to continue with the company's financial management (manage receipts and payments). That is to say, the claimant, with these credits to the supplier, still and always aims to obtain the products for the exercise of its normal activity. It should be noted, reinforcing what is said, that the claimant was in a situation of economic dependence before supplier C.... It could not replace that supplier immediately with another: and in that interim it was fundamental for its activity that it maintain the supply of products from its supplier C..., even at the cost of granting it credit for raw materials and personnel secondment. There is thus a concrete connection between these credits to supplier C... with the claimant's normal activity, in the sale of the products it acquired from C.... The economic causal nexus is proven by the claimant: without this financing to the supplier it was possible, given its difficulties, that it would be left without products for sale, without being able to replace supplier C..., in the short term. It is understood, therefore, that in this specific case there is no abuse of tax deductibility of impairments: the credits are granted with a view to ensuring the existence of products for sale; and not so that the claimant achieves above all and directly its tax deduction, independently of the connection with its activity.
In summary: the tribunal annuls the assessment, in the part in which it refers to impairments relating to raw materials (€391,891.35) and personnel secondment (€53,379.03).
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Finally, it remains to analyze the matter of credits relating to transfers to D... SGPS (the claimant's parent company) – in the amount of €39,076.29. In this case, the additional assessment is maintained (the tax act is not annulled
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